The White House does not believe the decision to rebrand President Joe Biden‘s Build Back Better agenda as the Inflation Reduction Act could backfire if consumer prices do not come down soon.
But despite the White House’s confidence, Republicans and some economists contend that the climate and healthcare spending bill, the result of a yearlong negotiation, may not counter inflation, at least in the short term.
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Regardless of the marketing, the IRA, brokered by Senate Majority Leader Chuck Schumer (D-NY) and Sen. Joe Manchin (D-WV), may have no or minimal price repercussions, according to American Enterprise Institute senior tax policy fellow Kyle Pomerleau.
“Inflation, right now, is a big issue,” he told the Washington Examiner. “Voters are concerned about it. Passing a package that says it’s going to reduce inflation, they view that as a positive.”
“Now, policywise, I think that most of the groups that have analyzed the economics of this and find that it will have no impact on inflation are correct,” Pomerleau said. “I think at best, this is a modest impact on prices.”
For Pomerleau, Democrats’ overriding theory of the case that decreasing the federal deficit will address inflation is based on the scoring of the bill before concessions were made to Sen. Kyrsten Sinema (D-AZ).
Before Schumer and Manchin struck a deal this week with Sinema, securing the 50th and final vote required to clear the legislation through the Senate using the reconciliation process and Vice President Kamala Harris, the Congressional Budget Office found the original proposal could bring down the deficit by $305 billion over the next decade, including in 2023 and 2024. But the independent federal agency also found it could have little or no counterinflationary effect during the same time period.
“I am skeptical of their theory that reducing the deficit will reduce inflation,” Pomerleau said. “But if, in fact, they are not reducing inflation much, that weakens their case.”
For Darrell West, the Brookings Institution’s governance studies vice president, the bill is designed to mitigate elevated prices related to climate and healthcare and perceived problems with longer time horizons. The current bill, which has to be approved by the Senate parliamentarian, pitches spending $64 billion on Affordable Care Act healthcare premium subsidies and $369 billion on energy and climate investments. Sinema asked Schumer and Manchin to nix their carried interest loophole provision in favor of a 1% stock buyback excise tax and $5 billion for drought resiliency.
The benefit of that is the bill is unlikely to contribute to June’s 9.1% inflation, with last month’s numbers expected next week, West argued. The detriment is swing voters may not experience economic relief before November’s midterm elections, in which Democrats face a difficult, though improving, political environment. Democrats and Republicans are tied on average congressional ballot polling, according to RealClearPolitics. FiveThirtyEight predicts Democrats have a 59% chance of keeping the Senate, while Republicans are 80% likely to flip the House.
West pointed to dropping gas prices since national averages of more than $5 a gallon were recorded in June as an indication of peak inflation. Republicans assert the cost of gas is still roughly $1.70 higher than shortly after Biden took office.
“There needs to be similar progress on food and housing, among other issues,” West said. “With recent interest rate increases, the home market is cooling, which should help as well.”
The White House has to deal not only with Biden’s average 39% approval rating, according to RealClearPolitics and FiveThirtyEight, but it has to grapple, too, with YouGov polling suggesting that 36% of the public think the bill will exacerbate inflation. Another 23% told pollsters this week it would have no consequences for prices, and 29% are unsure with regard to possible ramifications.
White House press secretary Karine Jean-Pierre defended the rebrand, repeating that “it should be called the Inflation Reduction Act because that’s exactly what it’s going to do.” She cited 126 economists, encompassing seven Nobel Prize winners, in addition to five former treasury secretaries and Committee for a Responsible Federal Budget President Maya MacGuineas.
Jean-Pierre’s response to Republican criticism, such as that from Sen. Lindsey Graham (R-SC), who has slammed the bill as “a complete fraud,” was sharp.
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“Why is it that they are willing to not fight or not support a bill that’s going to help the American people, that’s going to help the middle class?” she said. “Why are they willing to hold the water for corporate America? Why are they willing to push corporate welfare?”
